by Uzi Eilam
The Advisory Committee had long discussions on missile defense in general and the Arrow program in particular. The program’s administration, headed by Uzi Rubin, and the project’s management framework within the Israel Aerospace Industry, headed by Dov Raviv, presented committee members with their plans, their successes, their failures and concerns, and their ultimate confidence that the Arrow missile was capable of intercepting ballistic missiles threatening Israel. The Advisory Committee’s support for the development programs was important both for us at MAFAT and for the personnel of the Israel Aerospace Industry. However, its opinion was also important to the defense minister himself.
Opposition to the missile defense program within the IDF stemmed from concerns that at a certain point it would start requiring large allocations from the defense budget. As long as the funding for development came almost exclusively from the budget of the US Strategic Defense Initiative Organization (SDIO), the army’s resistance was not influential. I was not surprised by the opposition from within the army. It was reminiscent of the way the air force had opposed the first air-to-air missiles developed by Rafael in the 1960s, during my days in the Weapons Development Department of the Operations Branch. It also brought to mind Benny Peled’s stubborn opposition, during the early days of the R&D Unit, to electro-optic surface-to-air missiles to be launched dozens of kilometers from their targets. On the basis of such budgetary considerations, the air force had also opposed the development of “pods”, mounted on the wings of aircraft to serve as advanced electronic warfare devices. Within the ground forces, which were never as monolithic as the air force, opposition was much more diffuse. Nonetheless, it too brought back memories from the past: of the opposition to the development of the Merkava tank led by Armored Corp Commanders Avraham Adan and Quartermaster’s Branch Chief Amos Horev. In that instance, the balances were tipped in favor of the Merkava by the influence and persuasiveness of Major General Tal, and the tank development program continued to push forward. Israel’s small navy had not acquired American naval warfare systems and was forced to secretly transport completely unarmed missile boats from the Cherbourg shipyard on the southern coast of France to Israel. The navy gratefully accepted most of the development plans which the defense industries and the defense ministry proposed. This is how the sea skimming anti-ship Gabriel missile was developed, as well as the naval electronic warfare systems that resulted in impressive successes in battles against the Soviet missile boats of the Egyptian and Syrian navies during the Yom Kippur War. Development of the Arrow missile defense program again received a green light, but was nonetheless in constant danger with every failure of an experimental launch.
At the request of the defense minister, the dilemma regarding the conversion of Rafael into a government company was also brought for discussion before the Advisory Committee. Rafael, the Israeli defense establishment’s main research and defense laboratory, had come a long way. For many years, Rafael had a direct and exclusive relationship with the defense establishment. Its role was to advance military technology and develop weapon systems for the IDF. For years its primary customer was the Israeli air force, for which the Rafael developed air-to-air missiles, air-to-surface missiles, and airborne electronic warfare systems.
But like the other defense industries, Rafael had started to engage seriously in defense exports. With every reduction in the overall defense budget and the resulting reduction in the funds allocated to R&D, Rafael was compelled to search for external funding sources just to keep its exceptionally skilled teams of workers intact. Cuts in the defense budget were accompanied by an increase in the importance of American aid, and Rafael, along with the other defense industries, stood by helplessly as the United States provided Israel with weapons seemingly free of charge. The annual allocation of $1.8 billion to Israel each year so that Israel could turn around and purchase weapon systems that were developed and produced in the US was a shrewd political and strategic maneuver that kept Israel militarily, economically, and politically dependent on the US. American aid to Israel gradually rose to $2.4 billion per year, and the single ray of hope context was a provision by which Israel was permitted to convert $600 million each year into shekels to acquire weapon systems from Israeli defense industries. This provision was compensation for Israel’s 1987 decision to cease development and production of the Lavi fighter plane. Most of the funds were funneled into R&D projects within the defense industries and this funding remains an important basis of Israeli military technological development today. And so it came to pass that the defense establishment found itself with a gradually decreasing shekel budget which made defense exports to foreign customers a promising solution to the budgetary problems facing Israel’s defense industries.
Rafael, still a government-owned defense laboratory, was authorized to export advanced weapon systems; one of its major successes was the export of the air-to-air Python missile. Beijing became an important customer of Israeli defense exports during the period that billionaire Shaul Eisenberg was responsible for all contacts with China.
The successful management of its missiles project enabled Rafael to continue full funding of the development of a new generation of air-to-air missiles for the IDF, thus establishing a primary principle of defense exports — that permission to export a weapon system depended upon the defense industries’ ability to develop the next generation of the same system. Dr. Zev Bonen, Rafael’s director at the time, was a missile man himself. He made enthusiastic and over optimistic calculations of a future in which Rafael would be able to successfully market all the weapon systems it developed. Bonen envisioned a Rafael with more than 10,000 employees, working in all the areas characterized by advanced military technology on development and production for the IDF and exporting hundreds of millions of dollars of weapon systems each year. After its success in exporting its air missiles Rafael also wanted to market the anti-tank missiles it had developed. Here, however, it encountered fierce IDF opposition to the export of such an advanced and classified system which, army officials argued, had to be maintained as a surprise weapon for future wars. The obstacle was overcome by promising that the income generated by the export of the missile systems and the associated knowledge would be invested in developing the next generation of anti-tank missiles for the IDF. This agreement was reached by Yitzhak Rabin, thus reinforcing the principle that guided us in all subsequent deliberations in the Supreme Defense Export Authorization Committee.
The greater the cuts in the defense budget for research and development and for acquiring Israeli-made systems, the greater efforts the defense industries made to export their products. The defense ministry worked with the defense industries in a number of capacities. Some of the industries were private companies, such as Elbit, Elisra, Tadiran, and El-Op, which could be dealt with based on the quality and uniqueness of the products they developed and produced. Other industries, such as Israel Aerospace Industries (IAI) and Israel Military Industries (IMI), were government-owned companies. In these companies the defense ministry was in charge of supervising operations on the part of the government, or the owners. Although the government companies were run like commercial companies, they enjoyed a special relationship with the defense ministry and their directors had unfettered access to the defense minister and the director-general. A widespread sense of responsibility for the well-being and success of these industries pervaded all ranks of the IDF and the defense ministry.
Rafael was a large government-owned defense laboratory whose personnel were state employees and whose budget was part of the Israeli defense budget. As defense exports grew and became an increasingly important basis for the existence of Israel’s defense industries, competition in foreign markets intensified and became in some cases fierce and bitter. The private companies complained that the defense ministry was favoring its “own” industries and that they were in an inferior position when it came to receiving export permits and exerting pressure on the government leve
l. But these grievances were nothing compared to the claim that Rafael, as an integral part of the defense ministry, was enjoying the best of both worlds. Both the private industries and the government-owned industries began to pressure the defense ministry to rectify the anomaly of this government-owned agency that was competing with them and at the same time being clearly favored by the defense establishment.
Since its establishment Rafael had been engaged in research and development and in pushing the technological envelope. Largely due to its status as a national laboratory and the relative freedom with which its research teams could dedicate themselves to projects without considering competition or income, Rafael accumulated a diverse wealth of knowledge...aluable asset that gave Rafael a clear advantage in the new area of competitive defense related exporting, even without the preferential treatment of the defense ministry.
Eventually, the defense ministry reached the conclusion that it needed to change the nature of its relationship with Rafael. Since it was clear that this would be a difficult task, Rabin appointed Major General (Res.) Moshe Peled to be the director-general of Rafael, trusting that his extensive and diverse experience would enable him to make the necessary changes within Rafael. Peled, a member of Moshav Nahalal who had been an armored division commander in the Golan Heights during the Yom Kippur War, finished his military service as a major general and as the commander of the armored corps. For a few years after leaving the military he served as an advisor to the defense minister on defense industries; he possessed a solid understanding of the complex problems he faced in his new position. Peled was endowed with traits that gave him a good chance of success: intelligence, honesty, the ability to speak directly and candidly to all types of people, and courage, not only on the battlefield but within the civilian arena as well.
The first challenge that Peled set out for himself was Rafael’s Testing Unit, which had an illustrious history and unique organizational culture. Working for years in the heart of the Negev desert, testing unit personnel had a great deal of experience with stressful situations and with the tension of waiting. In the course of his confrontation with the unit, Peled did not hesitate to close the unit and delay tests that were essential to the development of weapon systems. The employees, however, were not alone in their viewpoint, and received the full support of Rafael’s union throughout the struggle.
Defense Minister Yitzhak Rabin was aware of the intense confrontation stemming from Peled’s campaign at Rafael and asked for the Advisory Committee’s opinion on the matter. It was then that Jortner’s committee began one of the most important and fascinating chapters in its work. It was presented with detailed reports on Rafael as a company and on the organizational reforms that Peled had initiated. These background reports contained a wealth of information on the company’s specialization centers and its development and production plans for the present and the future. With the encouragement of the defense ministry, Rafael tried to operate as an economic entity in every way, and made great efforts to organize itself into a complex of profit centers, to treat its different departments as subsidiaries, and to forge partnerships with outside entities. It also maintained a technology transfer company for civilian applications, which handled, among other things, the development and production of advanced optic sensors. The defense ministry established a board of directors that tried to function like a typical board of directors in the business world, with monthly meetings that included presentations on working plans and discussions on budgetary issues. It was nonetheless clear that all real decisions were made within the defense ministry. All this information provided material for Advisory Committee discussions and for tackling the question of whether Rafael should operate as a government company. Assuming that Rafael would be permitted to become a company, other questions were whether it could be run like an ordinary business and whether such an approach would interfere with efforts to maintain the high quality technological drive that had always played such a dominant role in Rafael operations and made it so productive.
One of my surprises when I returned to the defense ministry as the director of MAFAT was the resolute position of Elbit President Emanuel Gil. A significant portion of the research and development budget was earmarked for activities classified as “exploratory R&D”, which could be based on the results of basic research and make use of accessible technological capabilities. We found such initial exploration necessary to reduce the number of technological questions that required answers before embarking on full-scale engineering development with a relatively high level of confidence. From the outset, Rafael engaged in much exploratory R&D. Israel Aerospace Industries, and its subsidiary Elta in particular, also had a significant number of teams engaged in this type of work. Elbit, however, was unwilling to undertake a substantial amount of exploratory R&D. When I met Gil, I asked him why. “Uzi“, he began, “You have to try to understand us. In order to engage in exploratory R&D, we need to allocate our best people to the task. You cannot ensure that every exploratory R&D effort will result in a full-scale engineering development project and continue on to a production line. Our real profit is found there, in projects that enable us to market products. That’s where we need our best people. They will not, however, be available if we are committed to exploratory R&D projects. At the end of the day, we are measured by our quarterly reports and our value on the stock market. Find companies that are willing to use your budgets and work on exploratory R&D, and we will buy them when the products of the process are ready to begin full-scale engineering development, and when it is certain that there will be a product.”
I remembered how shocked and disappointed I was when I heard his explanation, which I shared with my colleagues on the Advisory Committee as the discussions about how to go about the reorganization of Rafael began to heat up. In addition to the strategic considerations of maintaining the company’s capacity to remain at the forefront of modern technology, there were also the more prosaic considerations of budgets and funding. Rafael’s experience in beginning to undertake business-oriented financial activity and the routine of reporting to the board of directors exposed the truth about the scope of the budgets and funding provided by the defense ministry. Despite Rafael’s handsome profits from weapon systems projects based on advanced technologies, it became clear to the committee that Rafael was not and would never be profitable when judged according to business criteria alone.
The committee began leaning toward the idea of converting Rafael into a company. The prevailing tone within the committee was set by men of experience, not only in senior positions within the IDF and the Israeli establishment but also in business. Slowly but surely the committee generated its recommendation, which was meant as a compromise. It called for restructuring Rafael in a way that would enable its departments and units to operate like the other defense industries and, at the same time, to maintain a critical mass of personnel and organizational structures to function as a national laboratory under the auspices of the defense ministry. This recommendation, which at the time appeared to be a balanced and feasible solution, was supported by most members of the Advisory Committee, including Jortner, Tzur, Horev and myself. Professor Dostrovsky, however, who was a physicist through and through, vehemently opposed our recommendations and argued that the compromise would never succeed. If we wanted to terminate Rafael’s status as a national laboratory, he asserted, we needed to be straightforward and honest about it. Dostrovsky also maintained that Rafael should be maintained as a technological unit and that the framework that would result from the plan on the table would not ensure a critical mass of research personnel. Dostrovsky’s dissenting opinion, written in the his characteristically sharp, clear style, was also submitted to the defense minister, in addition to the committee’s majority recommendation. I suggested to Jortner that Dostrovsky be included in the subcommittee that would meet with the minister to present the committee’s findings, conclusions, and recommendations regarding Rafael’s conversion
into a company. I then decided that it would be better if I did not take part in the meeting.
Rabin adopted the recommendation and Rafael continued along the path toward becoming a company. The process was not an easy one, and much of the credit for the success of the process belonged to Moshe Peled.
Today, Rafael is a well established, successful government-owned company. Professor Dostrovsky, who continued to argue passionately in favor of “the necessity of maintaining a large national laboratory, and not selling off the defense-science assets for a bowl of mess of potage,” appeared to be wrong. However, one cannot always trust appearances. Today, 15 years later, I have no doubt that Dostrovsky was right, as Israel currently no longer has a laboratory for defense research and development. Dostrovsky accurately anticipated that Rafael would lose the critical mass necessary to operate as a national laboratory. In addition, the defense ministry funds allocated to this purpose are nowhere near what they once were. Rafael, which has indeed become a government company, still relies on the research foundation it built during its period as a government laboratory and sells its products to customers around the world.
After the murder of Yitzhak Rabin and Benjamin Netanyahu’s subsequent victory over Shimon Peres in the elections of 1996, Yitzhak Mordechai assumed the post of defense minister. Mordechai, who was strong and muscular and a soldier through and through, knew little of the world of technology. One day, Jortner and I were summoned to a meeting with Defense Minister Mordechai to update him and receive his blessing for our working plans and the direction in which the Advisory Committee planned to move forward. We drove to Jerusalem and met Mordechai at the Beit Hachayal soldiers’ hostel in the city. It was the height of winter, freezing cold. A power outage in the building left us and the minister together in a cold, dark room. Mordechai had been briefed ahead of time on the Research and Development Advisory Committee, and we tried to explain the nature and role of the body. The combination of the freezing cold and the defense minister’s total lack of understanding will remain forever ingrained in our memory. When Jortner and I left the meeting we knew that the era of Yitzhak Rabin was gone forever, and that the incumbent defense minister lacked a real understanding of the issues and would be unable to guide and trust the committee.